Building your SMSF portfolio

How you can build a diverse, balanced share portfolio as part of your SMSF.

One of the benefits of running your own SMSF is the wider choice of investments on offer, compared to a traditional supeannuation fund.

SMSFs can choose to invest in Australian and international shares, CFDs, options, warrants, metals, bonds and IPOs, as well as a variety of other investment types including property, managed funds and forex.

Shares (either listed or unlisted) compete for the title of the most popular asset class for SMSFs to invest in. So how can you make the most out of your share portfolio investments while minimising risk to your SMSF?

Document your investment strategy

Running your own SMSF means you assume responsibility for complying with superannuation and tax laws. As such, your SMSF should have a well-documented investment strategy, and an exit strategy, which will affect any investments you make, no matter what asset class they’re from.

It’s important to remember that an investment strategy is not a financial plan. An investment strategy should take into account the personal circumstances of all the fund members. It needs to consider the age of your fund’s members and the ability of your SMSF to pay benefits when members retire.

But your investment strategy has an impact on your financial plan and decision making when it comes to investment choices, like shares.

How will any short term investment decisions (e.g. to buy shares) sit alongside your long term strategy and goals for your superannuation?

Strike a balance

Diversification is a key question to address when planning your SMSF share portfolio. Should you be investing in a range of assets and asset classes, or within a share portfolio with a range of industries or share types? You should also take into account the liquidity of the fund’s assets (or how easily they can be converted to cash to meet SMSF expenses), and any liabilities.

Always bear in mind your appetite for risk when devising a strategy or choosing investments; this typically changes depending on your stage of life. If you’re near retirement, you may be more risk averse and conservative with the kinds of shares you choose, as you’ll need to live on the income from your SMSF nest egg in a matter of years. If you’re younger you may have years of income ahead of you and be more willing to take on riskier investment decisions that may reap greater rewards.

While some investments are riskier or safer than others, there is no guarantee that your shares will necessarily increase in value over time. So, like any portfolio of investments, a healthy share portfolio needs a good balance of both capital-growth and income-producing shares.

Income-producing assets generally offer income over the shorter term, like steady dividends in the case of shares. Capital-growth-producing assets require longer commitment and increase in value over time – riding out the highs and lows of the share market, for instance.

While there are tax advantages to holding shares in your SMSF, don’t let these benefits cloud the bigger picture: maximising your core investment.

Seek expert advice

Always bear in mind your appetite for risk when devising a strategy or choosing investments

There are many rules of thumb when it comes to building a share portfolio. Choose quality over quantity, for instance, or try to buy shares that are selling at a lower price compared to their value. While you need to assess and reassess your shares regularly to ensure you still want to invest in them or hold them, it may be wise to avoid a very high turnover in your portfolio.

Building a share portfolio requires good knowledge of the share market. It also requires consistency and ongoing activity in your investments, over the longer term.

Unless you’re very knowledgeable and confident about the investments you intend to make, and have a defined idea of the best investment strategy for the members of your SMSF, it can be beneficial to draw upon the expert advice of a financial advisor or someone who is experienced in advising on the kind of investments you wish to make.

Your SMSF is no doubt one of your largest assets, so seek an advisor who has a good track record in building share portfolios.

Other tools you’ll need

Investing in shares through your SMSF requires you to have access to certain tools, as well as knowledge.

Your fund will need a transactional account, and you’ll need access to a broker, or online broker, in order to trade. Companies like ESUPERFUND provide their clients with accounts to access both of these tools via preferred providers. ESUPERFUND also provides an example of an investment strategy for your SMSF, which can be adopted or modified as necessary.

A financial plan that takes into account your overall strategy can ensure that shares are a valuable asset class in any SMSF. As with any major financial decision, you need to make the cost benefit comparisons for all potential members when planning to buy or sell shares through your SMSF.

If you want to learn more about SMSFs, download an information pack.
If you’re ready to establish an SMSF, you can apply now with ESUPERFUND.

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The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives,
financial situation or particular needs. ESUPERFUND does not provide financial product advice or recommend any financial products:
This applies equally to those financial products which are established for your SMSF when you become a client of ESUPERFUND.
Where this publication refers to a particular financial product then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product.
We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website.
While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
When setting up a SMSF it is important to understand that additional fees may apply that must be carefully considered prior to making a decision to setup a SMSF including an
ATO Supervisory Levy
,
Company Trustee Setup Fee (where applicable)
, and
Investment Fees
.